EXQ: A Multiple-Item Scale for Assessing Customer Experience In The Emerging Experience Marketing Model

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1 1 EXQ: A Multiple-Item Scale for Assessing Customer Experience In The Emerging Experience Marketing Model The well-documented management shift from goods-centered to service-dominant logic (Brodie et al., 2006; Lusch and Vargo, 2006) identifies the differences between marketing services and goods, the latter the traditional domain of marketing scholarship (Shah et al., 2006). This shift exposes the need for companies to deliver high levels of service quality in order to achieve important marketing outcomes: the most important outcomes of service quality identified in the literature are customer satisfaction, loyalty and positive wordof-mouth (Anderson, et al., 1994; Verhoef et al., 2002; Dagger et al., 2007; Kamakura et al., 2002). In order to manage service quality, firms need to measure it and understand its connection with those important customer outcomes. Assessing the quality of service and its impact on customer behaviour has to be measured in an objective way (Parasuraman et al., 1988). SERVQUAL, a multiple-item scale introduced by Parasuraman et al. is the most researched and applied measure of service quality (Buttle, 1996; Morrison Coulthard, 2004). As services account for an increasing proportion of gross domestic product in developed economies, it has been argued that goods are becoming commoditized and that differentiation is increasingly obtained through service (Reinartz and Ulaga, 2008), although the evidence on this point is mixed (Neely, 2008). A parallel argument particularly prevalent in practitioner literature (Meyer and Schwager, 2007; Schmitt, 1999; Shaw, 2002) states that service, too, is increasingly commoditized, and that the contemporary consumer demands more than just competent service, seeking experiences which are engaging, robust, compelling and memorable (Gilmore and Pine 2002, p. 10). This argument, too, is largely conjectural, but increasing academic attention is being paid to whether and how the customer experience might go beyond service.one line of work is identifying experiential factors as a key ingredient in a new construct of service quality, therefore proposing the inclusion of emotional factors in the construct of service experience (Edvardsson et al., 2007; Seiders et al., 2005; Lee and Lin, 2005). Edvardsson et al. (2007) conclude that current service quality research focuses mainly on cognitive dimensions and quality factors linked to service episodes and critical incidents. Literature argues that there is a need to discuss the service experience through the lens of the customer (Edvardsson et al., 2005) and go beyond a purely cognitive assessment (Edvardsson, 2005). Schembri (2006) posits that customer experience is the key determinant of service quality evaluation and Berry et al. state that By definition, a good customer experience is good customer service, thus the customer experience is the service (2006, p.1). Another research stream highlights the difference between service quality and service experience by challenging Zeithaml s (1988) definition of service quality as a global assessment. Voss et al. (2008) believe that service quality is focusing largely on transaction specific assessment rather than the notion of the customer journey, described as the customer s sequence of touchpoints with the firm in buying and obtaining service, a prevalent one in service design (Berry et al., 2002; Voss et al., 2008). Other scholars draw on this work and propose an even further differentiation between service quality and service experience. For example, Payne et al. (2008) create awareness of the fact that the service experience includes communication, usage, as well as the service encounters. Consequently, if it is suggested that customers assess their service experience holistically (Verhoef et al., 2009), corresponding holistic frameworks have been proposed (Grewal et al., 2009; Payne et al., 2008; Verhoef et al., 2009), leading to calls for empirical examinations of the service experience (Verhoef et al., 2009, Voss et al., 2008). The notion of service experience, and its impact on business, is only now receiving great attention (Prahalad and Ramaswamy, 2004; Johnston and Clark, 2008). Creating superior customer experiences is now seen as a key objective for service organizations (Verhoef et al., 2009) in their efforts to build customer

2 2 loyalty (Badgett, Boyce and Kleinberger, 2007). A corresponding scale needs to be developed to evaluate the service experience from the customer s point of view (Verhoef et al., 2009). To develop the new measure, it is recognized that scale [development] must go hand-in-hand with conceptual development of the construct [service experience] itself (Brakus et al., 2009, p. 52). Therefore the measure should be based on a broader and more comprehensive conceptualization (Verhoef et al., 2009) that links the service experience to purchasing behaviour. This conceptual model of service experience aims to refine existing conceptual models for customer experience which have been proposed both in conceptual studies (Verhoef et al., 2009) and in studies which elicit the supplier s perception rather than the customer s (Payne et al., 2008; Voss et al., 2008). We recapitulate that service experience is an evolving concept. The emerging service experience construct is far broader than the limited functional service encounter suggested by current measures. It includes pre and post service encounter experiences, addresses emotional as well as functional dimensions of quality and includes the customer s social context. It includes an assessment of value-in-use, is formed over multiple channels and varies with context (Lemke et al., 2010). Building on this and the previously cited definitions, and the context of our research, we define service experience as the customer s cognitive and affective assessment of all direct and indirect encounters with the firm relating to their behavioural loyalty as defined by Oliver (1997). This article describes the development and validation of a multiple-item scale for service experience (EXQ) and provides (a) a sought after conceptualization that captures the domains of the construct, (b) a measure from the customers point of view, (c) a validation of the psychometric properties of the scale and (d) it demonstrates the effects of our empirically derived conceptualization with respect to important customer outcomes: satisfaction, loyalty and word-of-mouth. Drawing from the literature, we conduct a qualitative study that generates attributes of service experience. The proceeding section describes the purification and validation of a scale and its psychometric properties. The article then validates the scale to generate an empirically founded definition of service experience (EXQ). The penultimate section explores the nature and degree of EXQ s impact on customers satisfaction, loyalty and word-of-mouth. The final section discusses the findings of the study and its managerial implications Definition and Domain of EXQ To incorporate the wide range of possible assessment of service experience criteria arising from the literature, we use a framework based on the means-end-chain approach (Parasuraman et al., 2005). Our study presents a validated multi-item scale based on the underlying construct of service experience that extends previous research on service experience and service quality measures. The measure is called the service experience scale: EXQ. The research determines its dimensions by analysing that which customers describe as the triggers of their purchasing and re-purchasing behaviour. The methodology follows Churchill s (1979) scale development paradigm. As suggested by the literature, and other scale-developing studies (Walsh and Beatty, 2007), the scale will be developed in four stages: scale generation, initial purification, refinement and validation (for a more detailed description of the procedure see Appendix A). Stage 1 articulates the meaning and domain of service experience based on insights from the literature and a comprehensive qualitative study. It results in a preliminary scale containing 37 items that represent five dimensions. Stage 2 describes the administration of the scale to a representative sample of repeat mortgage purchasers of a UK bank from 175 completed questionnaires. Using exploratory factor analysis, the scale is purified to 19 items

3 3 that represent four service experience dimensions. In Stage 3 we conduct confirmatory factor analysis (CFA) to validate the purified scale based on 218 collected questionnaires from a representative sample, which confirms the scale s reliability and validity. Stage 4 introduces the final scale and the conceptual framework of service experience. The study assesses the relative importance of the service experience in influencing consumers overall satisfaction perceptions, loyalty and word-of-mouth intentions. Scale Development and Findings Stage 1: The Qualitative Study Stage 1 explores the perceptual attributes of experience through in-depth interviews using soft laddering (Grunert & Grunert 1995), a technique where respondents are restricted as little as possible in their natural flow of speech. This is an accepted method for assessing consumers cognitive structures and underlying purchasing (Reynolds & Gutman 1988). We achieved data saturation (Glaser & Strauss 1967) after conducting individual in-depth interviews with 30 mortgage customers from the UK over a four week period: each interview lasted between 30 to 60 minutes. We used a random sample of the Bank s customers who had purchased one or more mortgages in the previous six months, split between first time buyers and repeat buyers. The interviews were transcribed, coded and analysed following a grounded approach (Strauss & Corbin 1998); 58 customer experience items were generated. To maximize the content and face validity of the items generated, a panel of expert judges reviewed the retained item pool (Dagger et al. 2007) and performed three tasks: (1) assessed the similarity of items, the clarity of phrasing and the terminology used in the scale, (2) rated each item with respect to its relevance to the item description and (3) suggested dimensions and sub-dimensions that evolved from the research model and items. Five dimensions representing 37 items resulted from this stage. Stage 2: Scale Purification through Exploratory Factor Analysis (EFA) The scale was purified through EFA. Data were collected through a random sample of the Bank s customers who had purchased more than one mortgage from the bank and the most recent mortgage within the previous six months. The samples are analogous (see Appendix B). Exploratory factor analysis summarises the data into a minimum number of factors for prediction purposes. The resulting purified scale comprises four primary dimensions with 19 corresponding items, which, in conjunction with the expert panel, were labelled as follows to make the acronym POMP (see Appendix C): 1. Product experience Customers perception of having choices and the ability to compare offers. Choice dynamics are established as a critical factor in modeling consumer behaviour (McAlister and Srivastava 1991) and as an antecedent of loyalty (Srinivasan et al. 1998). 2. Outcome focus - is associated with reducing customers transaction costs, such as seeking out and qualifying new providers. This dimension reflects the importance of goal-oriented experiences in consumer behaviour (Huffman and Houston 1993), suggested by statements such as: We just wanted to get the mortgage as soon as possible. 3. Moments-of-truth This dimension is characterised by that which is commonly knows as moments-of-truth, emphasising the importance of service recovery (Tax & Brown 1998) and flexibility (Liljander & Strandvik 1997) when faced with unforeseen complications. 4. Peace-of-mind This dimension includes statements associated strongly with the emotional aspects of service and is based upon the perceived expertise of the service provider and the guidance provided throughout the process (Bendapudi & Berry 1997).

4 4 The findings indicate that service experience is a holistic construct (Verhoef et al., 2009), including determinants such as social interactions (Bagozzi, 2000), price (Baker et al., 2002), brand (Brodie et al., 2006) and channels. The validity of the findings is scrutinized in the subsequent quantitative data analysis (as outlined in Appendix A). Stage 3 & Stage 4: Reliability and Validity Assessment through Confirmatory Factor Analysis To perform the analysis, further data were collected: 218 qualified responses from a random sample of Bank customers. Scales from existing scale development studies were examined to determine the best choice for measuring the exogenous variables: customer satisfaction, loyalty and word-of-mouth intentions. The outcome is a scale measure of customer experience (EXQ) illustrated in Figure 1. A full definition of each of the attributes identified in the left hand side boxes is provided in Appendix C and Appendix D. Figure 1 Conceptual Model Customer Experience Quality EXQ The scale developed is a valid and reliable in explaining the relationship between customer experience and the selected outcomes (see Appendix E). The squared multiple correlations are as follows: for loyalty it is 86%, for customer satisfaction it is 63% and for positive word-of-mouth intention it is 94%. We compare the explanatory power of EXQ with customer satisfaction and our findings (Table 1) demonstrate stronger relationships between service experience and loyalty, as defined in this study, than between customer satisfaction and loyalty. Compared with the relationship between customer satisfaction and word-ofmouth, we also establish a more direct link between service experience and word-of-mouth. Therefore, whilst there is a body of literature offering customer satisfaction as a mediator between service quality and loyalty and word-of-mouth (Seiders et al. 2005), service experience could be an even better predictor of loyalty and word-of-mouth. Customer Satisfaction Loyalty Word-of-Mouth Experience Quality Customer Satisfaction Table 1 Explanatory Power of EXQ versus Customer Satisfaction

5 5 Our study discovers that the four POMP dimensions of customer experience explain most of the Bank s loyalty, word-of-mouth and customer satisfaction. The findings indicate that customers evaluate the customer experience at an overall level, a dimensional level and at attribute level and that each level drives perception on the level above. Discussion The findings suggest that customers base their perceptions of service experience on four dimensions: product experience, outcome focus, moments-of-truth and peace-of-mind (POMP). The findings improve our understanding of how customers evaluate their service experience by linking their evaluation to important marketing outcomes, namely customer satisfaction, loyalty and word-of-mouth intentions. EXQ, and its empirically derived construct of service experience, offer a stimulus and foundation to advance service marketing, particularly service quality and service experience research, by delivering a measure capable of capturing all facets of the construct of the service experience (Verhoef et al., 2009). Moreover, this scale measures the impact of the distinctive drivers of the service experience on each of the components of the service experience (Verhoef et al., 2009). The findings support previous conceptual papers that suggest the service experience is broadly based (Shembri, 2006; Berry et al., 2006), yet not as broad as suggested by some (Verhoef et al., 2009; Gentile et al., 2007; Meyer and Schwager, 2007). The implication of our findings is that scholars risk overcompensating for service quality s limitations by defining service experience too widely. The assessment of the overall service experience, as measured by the scale EXQ, reflects the evaluation of customers who recently repurchased a mortgage with a financial service provider in correlation to important outcome variables. The strong association between service experience quality and behavioural intentions is noteworthy because satisfaction is generally viewed as more closely aligned with behavioural intentions (Cronin and Taylor, 1992). Traditionally, customer satisfaction is modeled as a mediator between service quality and behavioural intention (Cronin and Taylor, 1992). Research points out that service quality also has a mediating role between service attributes and behavioural intentions, stating that its attributes are more strongly related to the overall service quality than to behavioural intentions (Dagger et al., 2007). Our findings demonstrate significantly stronger relationships between service experience and loyalty, as defined in this study, than between customer satisfaction and loyalty. Compared with the relationship between customer satisfaction and word-of-mouth, we also established a more direct link between service experience and wordof-mouth. Therefore, while there is a body of literature offering customer satisfaction as a mediator between service quality and loyalty and word-of-mouth (Seiders et al., 2005), our research advocates that service experience could be an even better predictor of loyalty and word-of-mouth. Managerial Implications EXQ provides a measure to help managers benchmark and track performance over time. More importantly, it illustrates a detailed structure whereby managers can determine which attributes of the customers service experience are most strongly associated with the marketing outcomes organizations are trying to achieve. This is a positive contribution to making Marketing more accountable as managers can relate investments in service experience more directly with the outcomes closest to income such as loyalty and word-ofmouth. Therefore managers should consider service experience as an important strategic objective.

6 6 Appendices Appendix A: Scale Development Process to Measure Customer Experience Quality

7 7 Appendix B: Profile of the Two Samples Variable Exploratory Study Confirmatory Study Age in Years Percentage Percentage NA ª 3.80 Sex Male Female Level of Education High School or less Some College College Graduate Graduate School

8 8 Appendix C: Dimensions Customer Experience Quality (EXQ) Dimensions Service Experience EXQ (POMP) PRODUCT OUTCOME FOCUS MOMENTS-OF- PEACE-OF-MIND EXPERIENCE (OUT) TRUTH (MOM) (PEA) (PRO) PRO1 Freedom of OUT1 Inertia MOM1 Flexibility PEA1 Expertise Choice Peace of Mind PRO2 Comparison OUT2 Result Focus MOM2 Pro-activity PEA2 Process Ease Necessity PRO3 Cross- OUT3 Past MOM3 Risk PEA3 Relationship product Experience Perception versus Transaction Comparison Influence OUT4 Common MOM4 PEA4 Convenience PRO4 Account Grounding Interpersonal Skills Retention Management MOM5 Service PEA5 Familiarity Recovery PEA6 Independent Advice

9 9 Appendix D: Measures of Study Constructs EXQ Respondents rated their customer experience on each scale item using a 7-point scale (1 = strongly disagree, 7 = strongly agree) with a Do not know/not applicable option as additional option next to the scale. The items below are grouped by dimensions for expositional convenience; they appeared in random order on the survey. The symbols preceding the items correspond to the variables named in Figure 3. Peace of mind PEA1 I am confident in their expertise; they know what they are doing. PEA2 The whole process was so easy, they took care of everything. PEA3 It is not just about the now; this company will look after me for a long time. PEA4 I am already a customer; they know me and take good care of me, so why should I go somewhere else? PEA5 I have dealt with them before so getting a mortgage was really easy. PEA6 I choose them because they give independent advice. Moments-of-Truth MOM1 It was important that the company was flexible in dealing with me and looking out for my needs. MOM2 It is important that they keep me up-to-date and inform me about new options. MOM3 I want to deal with a safe company, because a mortgage is a lot of money. MOM4 It is important that the people I am dealing with are good people; they listen, are polite and make me feel comfortable. MOM5 The way they deal(t) with me when things go(went) wrong will decide if I stay with them. Outcome Focus OUT1 Yes, there are other companies, but I would rather stay with mine; it makes the process much easier. OUT2 It was more important to get the mortgage than to shop around for a better rate. OUT3 I stay with my company because I am not confident about using an alternative provider. OUT4 It was important that the advisor had a mortgage too; he/she knew what I was going through.

10 10 Product Experience PRO1 I want to choose between different options to make certain I get the best offer. PRO2 It is important to me to receive mortgage offers from different companies. PRO3 Unless I can compare different options, I will not know which one is the best for me. PRO4 It would be great if I could deal with one designated contact through the entire process of getting my mortgage. Customer Satisfaction The satisfaction measures consisted of three rating items; respondents indicated their satisfaction on each scale item using a 7-point scale (1 = strongly disagree, 7 = strongly agree) with a Do not know/not applicable option next to the scale. SAT1 I am satisfied with the service my mortgage service provider provides to me. SAT2 I am satisfied with my overall experience with my mortgage service provider. SAT3 As a whole, I am not satisfied with my mortgage service provider (reversed score item). Loyalty The loyalty measures consisted of three items using a 7-point scale (1 = strongly disagree, 7 = strongly agree) with a Do not know/not applicable option at the center of the scale. LOY1 I am a loyal customer of my mortgage service provider. LOY2 I have developed a good relationship with my mortgage service provider. LOY3 I am loyal to my mortgage service provider. Word-of-Mouth The word-of-mouth measures consisted of three items; respondents indicated their likelihood of engaging in each behaviour on each scale item using a 7-point scale (1 = strongly disagree, 7 = strongly agree) with a Do not know/not applicable option next to the scale. WOM1 I am likely to say good things about my mortgage service provider. WOM2 I would recommend my mortgage service provider to my friends and relatives. WOM3 If my friends were looking for a new company of this type, I would tell them to try my mortgage service provider.

11 11 Appendix E: Measurement Reliability and Validity Analysis Measurement Model Construct Reliability Average Variance Extracted Satisfaction Loyalty Word-of-mouth EXQ dimensions Peace-of-mind Moments-of-truth Outcome focus Product experience ,79 Goodness-of-fit indices CMIN df CFI IFI RMSEA

12 12 Dimension Item Construct Reliability Score Composite Reliability Peace-of-Mind.69 Moments-of-Truth.71 Outcome Focus.61 Product Experience.66 Customer Satisfaction.70 Loyalty.90 Word-of-Mouth.95 PEA1.833 PEA2.678 PEA3.631 PEA4.422 PEA5.548 PEA6.558 MOM1.669 MOM2.652 MOM3.568 MOM4.522 MOM5.484 OUT1.477 OUT2.518 OUT3.695 OUT4.455 PRO1.744 PRO2.744 PRO3.841 PRO4.500 SAT1.970 SAT2.970 SAT (reversed score item) LOY1.910 LOY2.910 LOY3.930 WOM1.940 WOM2.970 WOM3.940 Standard Path Estimates 1 Customer Satisfaction Loyalty Word-of-mouth Peace-of-mind Moments-of-truth Outcome focus Product experience t values were significant on the base of one-tailed test

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